With government regulators doing away with the red tape that has hindered new strategies from hitting the market, more individual money managers could enter the exchange traded fund space on their own.
White label ETF providers have gained traction as a means for start-ups to take on the well-established money managers that dominate the ETF industry. However, they could be under pressure with a rule to streamline the fund approval process or exemptive relief is expected to be implemented as money managers may consider going into the ETF space without a white label ETF partner.
“It’s really no longer about simply the speed of exemptive relief or saving some legal fees,” Phil Bak, chief executive officer of Exponential ETFs, which sells its own funds and selectively acts as a white label, told Bloomberg. “What’s more impactful to potential firms is having that expertise in house, on their team, on day one.”
These white label ETF providers found that after they have secured their regulatory approval to sell ETFs, there were a number of money managers willing to pay a fee to use their exemptive relief. These aspiring ETF asset managers were able to bypass the burdensome approval process and save money on legal fees by just partnering up with a bespoke ETF provider.
However, the vetting process for a new ETF has been cut down and is much cheaper than it use to be. Recent issuers calculate that gaining relief now costs as little as $15,000 in administration and legal fees. Some have even been able to receive approval from the Securities and Exchange Commission in just five weeks.
“I don’t really think that the old school white-label market of ‘I can do it cheaper’ can survive,” Mike Venuto, chief investment officer of Toroso Investments, an ETF consultant, asset allocator and index provider, told Bloomberg.
Looking ahead, under the new ETF rule, there will no longer be a need for new sellers of plain-vanilla ETFs to seek out the SEC for exemptive relief from the Investment Company Act of 1940, which will further reduce the time and money needed to kick start an ETF.
Nevertheless, white label firms still believe they have a place in this changing market.
“Exemptive relief aside, it will take you a year to set up the infrastructure to launch an ETF on your own,” Garrett Stevens, chief executive of Exchange Traded Concepts, told Bloomberg. “We’ve made it look easier than it is.”
The infrastructure behind the ETFs includes establishing an investment trust to house the fund, setting up a board of directors and getting essential service providers, such as a custodian, lead market maker and the authorized participants that create and redeem ETF shares. White label ETF providers will rely on their expertise and background to help get potential ETF clients to market in an efficient manner.
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